Tag Archives: economic forecasts

We’re finally on the path to full economic recovery, and Arizona may get there in about three years. That’s the main message from experts who spoke today at the 49th Annual Economic Forecast Luncheon co-sponsored by Arizona State University’s W. P. Carey School of Business and JPMorgan Chase.

About 1,000 people attended the event at the Phoenix Convention Center, where economists painted a generally brighter picture for 2013.

“As of September, Arizona ranked fifth among states for job growth, and the Phoenix area was fourth among large metropolitan areas,” said Research Professor Lee McPheters, director of the JPMorgan Chase Economic Outlook Center at the W. P. Carey School of Business. “Arizona is expected to add 60,000 jobs in 2013, led by professional and business services, retail, hospitality and health care. We should finally dip below 8-percent unemployment in 2013 — down to 7.6 percent.”

McPheters added, as long as the national economy doesn’t drag us down, Arizona may see 2.5-percent growth in its employment rate next year. The state had 2-percent growth this year. Despite the jump, Arizona has gained back less than a third of the jobs it lost during the recession. McPheters believes it will take another three years to return to pre-recession employment levels.

In 2013, McPheters expects improved 5-percent growth in personal income, up from just 4 percent this year. He projects retail sales will go up 6 percent, from 5 percent this year. He expects Arizona’s population to rise 1.5 percent, and he believes single-family housing permits will shoot up a whopping 50 percent, with the local housing market now on the mend.

Both McPheters and Beth Ann Bovino, deputy chief economist at Standard & Poor’s, hinged their forecasts on whether the national economy can really pull forward; otherwise, Arizona will go down, too. The biggest question out there is whether Congress can avoid the “fiscal cliff” – where automatic spending cuts would kick in, just as various tax cuts expire. Bovino says that could plunge the United States back into recession and push national unemployment back above 9 percent by the end of the year.

“If we can avoid the fiscal cliff, then it looks like the economy could finally be in a self-sustaining recovery,” said Bovino. “We expect this year’s gross domestic product (GDP) to hit 2.1 percent, stronger than previously projected. For 2013, we’re looking at about 2.3 percent. Reports also show a stronger jobs market and signs that households are willing to buy big items, such as cars and homes.”

Bovino adds the U.S. unemployment rate was at 7.9 percent in October, and she sees signs more people are joining the workforce and getting jobs. However, she says the labor participation rate is still near a 30-year low, meaning more people will still be coming back to the workforce to look for jobs, keeping the unemployment rate low for a quite a while. Despite this, Bovino expects the national unemployment rate to drop to 7.6 percent next year.

She also has a good outlook for the national housing market, with housing starts already up 45 percent this September over last September. Bovino referenced a report that 1.3 million homes rose above water – with the value going higher than what was owed – in the first half of this year alone. She expects residential construction to go up almost 19 percent in 2013.

In the financial sector, Anthony Chan, chief economist for private wealth management at JPMorgan Chase & Co., says corporations remain flush with cash. They’re waiting for some clarity on where the market will go as a result of the fiscal-cliff situation and other factors.

“U.S. corporations are reluctant to go through global mergers and acquisitions or make big investments until they have a clearer picture,” said Chan. “Corporations are keeping high cash balances, in order to deal with the uncertainty. They’re making near-record profits in some cases, and many values on the stock market look good. However, everyone’s waiting to see what will happen.”

He said high-yield investments, such as bonds, and gold remain relatively attractive. The U.S. dollar keeps falling against currencies from emerging markets, as monetary agencies work through different strategies of dealing with the rough economy.

“Even though about 40 percent of Arizona homeowners are underwater on their mortgages, we’re starting to see a recovery,” said Pollack. “The single-family-home and apartment markets look great. Industrial real estate has improved quite a bit. Only office and retail have quite a way to go.”

Pollack adds new residential foreclosure notices are down almost 70 percent from the peak in 2008. Phoenix-area home prices are up more than 35 percent over last year. New-home sales are also doing well, with 67 percent of the local subdivisions active today projected to be sold out in less than a year. Builders are going to have to work to meet the demand, with less land and labor available.

Pollack sees a strong rental presence, with about 22 percent of local single-family homes being used as rentals right now. That’s up from less than 12 percent just a decade ago. Landlords appear to be buying up many single-family homes, and more people are moving to the area.

“In the absence of a fiscal cliff, things should continue to improve over the next several years,” said Pollack. “By 2015, things should be normalized. As I like to say, we’re only one decent population-flow year away from the issue being resolved.”

More details and analysis from the event, including the presentation slides, are available from knowWPCarey, the business school’s online resource and newsletter, at http://knowwpcarey.com.

Arizona’s economy improved somewhat this year, but what can we expect in 2013? Top experts on the U.S. and Arizona economies will deliver their forecasts for the state, nation, stock market and housing market at the Valley’s largest and most trusted economic-forecasting event on Dec. 5.

The 49th Annual Economic Forecast Luncheon is co-sponsored by the Department of Economics at Arizona State University’s W. P. Carey School of Business and JPMorgan Chase. About 1,000 people are expected to attend the event at the Phoenix Convention Center.

“Arizona’s economic forecasters are patting themselves on the back, since their projections made a year ago appear to be accurate for 2012; the state seems certain to record about 2-percent job growth, and we are seeing the beginning of a housing comeback,” says Research Professor Lee McPheters, director of the JPMorgan Chase Economic Outlook Center at the W. P. Carey School of Business. “However, 2013 is a different story. A huge cloud of uncertainty is caused, not only by questions about what the next Congress will do, but also about how the overall U.S. economy will react to recession in Europe and slower growth in China. Though the national economy always has some impact on Arizona, until housing and population growth really pick up, the state seems destined to closely follow the national business cycle. If the U.S. economy contracts, then Arizona’s economy will, too. That’s the major risk we’re watching.”

Presentations will include forecasts on:

* Arizona and the regional economy from McPheters, who is also editor of the prestigious Arizona and Western Blue Chip Economic Forecast publications. * The U.S. economy from Beth Ann Bovino, deputy chief economist at Standard & Poor’s, a widely quoted media expert with two decades of financial experience, including a position at the Federal Reserve. * The financial sector from Anthony Chan, chief economist for private wealth management at JPMorgan Chase & Co., who served as an economist at the Federal Reserve Bank of New York, appears monthly on CNBC and is a member of the Reuters, Bloomberg and Dow Jones weekly economic indicator panels. * Real estate and construction from Elliott D. Pollack, chief executive officer of Elliott D. Pollack and Company, a highly regarded Scottsdale-based economic and real estate consulting firm.

The 49th Annual Economic Forecast Luncheon will be held in the Phoenix Convention Center’s West Ballroom on Wednesday, Dec. 5 from 11:15 a.m. to 1:30 p.m. Admission is $90 per person. Proceeds are used to support student scholarships, faculty research, and other academic and professional activities in the Department of Economics at the W. P. Carey School of Business.

While the nation’s economy showed some significant signs of life in the first half of 2011, the state’s economy continues to bounce along the bottom. But forecasters at the Economic Club of Phoenix’s Annual Economic Outlook 2011 luncheon on May 5, said they are looking at a comparably stronger finish to the year, with growth continuing at a healthier pace leading up to 2015.

“Arizona job growth is still very weak. For the first quarter, the Arizona economy has added only 4,100 jobs over the first quarter of last year, so growth is well below one half of one percent,” said Lee McPheters, director of the JPMorgan Chase Economic Outlook Center at the W. P. Carey School of Business in an interview before the luncheon. “The summer is not usually a strong period for job growth in Arizona, in fact the economy basically goes nearly flat. We are currently forecasting 1 percent job growth, or an increase of about 24,000 new jobs for the year.”

McPheters said that if Arizona has any hope of generating 1 percent job growth, the state and nation’s economies needed to get moving in the second half of the year.

“Current national forecasts are calling for improved job growth this year, but it will also tend to be weighted to the second half,” he said. “So, economy watchers have their fingers crossed that things will improve after summer.”

According McPheters’ forecast, in 2011 the nation will record 650,00 housing starts, an inflation rate of 2.6 percent, 2 million jobs created and GDP growth of 3.1 percent.

Here in Arizona, where the state once led national economic recoveries, it is now relying on growth in other parts of the country to rev up its financial engine.

“Arizona population growth depends as much on events outside Arizona as within the state,” McPheters said. “If Arizona job growth improves (and it has a long way to go), this would act as a ‘draw.’ But people have trouble moving if they cannot sell their house or if they cannot get the price they need. That is why we expect to see more young people move to the state, they will rent instead of buy and are less locked into a particular career path.”

This year, McPheters forecasts that Arizona job growth will only be 1 percent, with personal income rising 4 percent. Meanwhile, single-family home permits are expected to rise by just 10 percent and the population will increase by 1.5 percent. The forecast is only slightly better in 2012, with employment expected to be up 2 percent, a 30 percent increase in single-family home permits and a 1.8 percent rise in the number of people moving into the state.

However, McPheters said, the state’s economy will continue an upward trajectory through 2015, with personal income rising 6.5 percent, the rate of job growth hitting 3.5 percent and a population increase of 2.5 percent. Single-family housing permits are expected to increase by 50 percent in 2013 (reflecting the current stasis in the residential home industry) before leveling off to a 20 percent growth rate in 2015.

In raw numbers, McPheters forecasts that between 2011 and 2015 the state will create 300,00 jobs, issue 112,500 single-family home permits, and see 665,000 new residents.

The state’s ongoing budget crisis has been one of the major factors in Arizona’s slow economic recovery.

“The effect of budget cut backs has been felt sharply by local governments,” McPheters said. “Their employment is down by 5,000 workers and is expected to decline more in the months ahead. Typically, we look to state and local government as a source of stability, not necessarily a growth sector. But current budget problems have changed all that.”

Not too long ago, Arizona enjoyed a substantial budget surplus. So, where did all the money go? Dennis Hoffman, director of the L. William Seidman Research Institute, succinctly illustrated the devastating effect the economic crash had on Arizona residents and, in turn, the state’s revenue.

The number of millionaires in Arizona dropped from 6,000 in 2006 to about 2,500 in 2009.

Taxes paid by millionaires dropped from more than $800 million in 2006 to under $300 million in 2009.

In 2006, the state’s 70,000 tax filers with incomes of $200,000 and above paid half of all taxes or $1.6 billion. In 2009, that same group of taxpayers shrank to under 50,000, paying about $550 million — less than 25 percent of the total taxes paid.

In addition, the state reduced tax rates by 10 percent after 2006.

When adjusted for inflation, the average amount of income tax collected from an Arizona resident dropped from about $1,650 in 2005 to about $1,050 in 2009. But even as fewer dollars come in, the state’s expenditures have remained relatively constant.

“Right now, the state’s expenditures represent about $425 per $10,000 of personal income in Arizona,” Hoff man said at the luncheon. “However, the state is only collecting about $300 per $10,000 of personal income. Obviously, that’s not sustainable.”

Hoffman did sound one bright note.

“The last couple of months have seen considerably robust retail sales, especially in the area of durable goods,” he said, adding that improved consumer confidence is fueling the recent growth.

That will certainly help the state government as it grapples with its budget crisis, but Hoffman also pointed out that the temporary sales tax increase will expire just as the economy is expanding and putting more pressure on public sector services. He added that state policymakers will face a “balancing act” during much of the next five years — especially in 2014. Part of the solution, Hoffman said, will involve streamlining the state’s expenses and raising taxes.

“Government just simply has to be more efficient in it’s expenditures,” he said. “(And) we have to ask everyone to contribute according to their means.”